Run the denominator

Data Desk · Part 10Markets

The S&P 500 trades at 19.0 times forward earnings, which sounds reasonable until you set it beside a 10-year Treasury paying 5.00%. Cut the earnings, move the yield, and watch the gap to Treasuries change sign.

As of Oct 23, 2026 · irregular, with each Part on valuation · published Oct 23, 2026 · read Oct 23, 2026 · scenario · next release after the October 28 reports

What the chart says. The multiple is not the problem. The profits under it are. A 10% earnings miss at today’s prices turns 19.0x into 21.1x and leaves the forward earnings yield 26 basis points below the 10-year Treasury yield.

Source: FactSet (forward multiple and averages, as of Oct 2, 2026); FRED DGS10 (10-year close, October 23, 2026, refreshed at each build). Scenarios are DeepStack arithmetic, not forecasts.

Show the data table

Scenario	Earnings change	10-year yield	Multiple	Earnings yield	Yield gap
Today	0%	5.00%	19.0x	5.26%	+26 bp
Earnings 10% lower	−10%	5.00%	21.1x	4.74%	−26 bp
Howell’s 5.5% line	0%	5.50%	19.0x	5.26%	−24 bp
Katsenelson’s 6%	0%	6.00%	19.0x	5.26%	−74 bp
Miss and 5.5%	−10%	5.50%	21.1x	4.74%	−76 bp

Read Part 10: The Bubble Is in the Denominator

Change in forward earnings0%−40%+20%

Step 1%

10-year Treasury yield5.00%3.50%6.50%

Step 0.01 pt

Multiple at today’s prices19.0x

Stocks’ earnings yield5.26%

Forward earnings yield minus 10-year Treasury yield+26 bp

5-year average19.8xtoday 0.8x cheaper
10-year average19.1xtoday 0.1x cheaper
End of June20.4xtoday 1.4x cheaper

This is a valuation sensitivity, not a risk-adjusted return comparison. Earnings are not contractual distributions, and the two assets differ in duration, growth, inflation exposure and risk.

At 19.0x, stocks yield 5.26% on forward profits against 5.00% on the 10-year. The forward earnings yield is 26 basis points above the 10-year Treasury yield.